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Deloitte survey: 2017 as the year of recovery?

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LNG Industry,

Deloitte has published its survey: “2016 Oil and Gas Industry Survey: Optimism Emerges in the Aftermath of a Long Downturn”, which shows that 59% of oil and gas professionals believe the recovery already has begun or will begin in 2017.

“This recovery in many ways mimics the pattern of the recovery from the Great Recession,” said John England, Vice Chairman, Deloitte LLP and US and Americas oil and gas leader. “If last year was the year of hard decisions, 2017 will be the slow road back. Companies are generally optimistic that prices will rise to a more sustainable level next year; however, they understand that even if we see an uptick in price, the industry likely won’t fully recover until 2018 or beyond.”

The highlights include:

Most executives believe that US$60/bbl is an important threshold for a revival in US oil and gas exploration and production activity.

For 2017-2020, 70% of the respondents expect prices to range between US$2.50-3.50 per million Btu, with a third anticipating this price band in 2017.

Survey respondents expect Asian natural gas prices to be much higher than Henry Hub to the end of 2016-2020, which creates opportunity for US LNG exporters. Of professionals surveyed, 81% believe international prices will range from US$5-10 per million Btu.

The downturn moves to the midstream sector

“Contraction in the upstream sector has begun to wear on the midstream sector, once thought to be somewhat immune from commodity price volatility,” said Andrew Slaughter, managing director of the Deloitte Center for Energy Solutions, Deloitte Services LP. “However, the sector’s fee-based contracts are at risk of being renegotiated or challenged in bankruptcy court, given the financial stress of upstream producers. We already are seeing movement toward consolidation, and more could be on the way. Professionals also see infrastructure building both in the US and in Mexico as the biggest area of midstream opportunity.”

Midstream finds its own set of challenges and its own opportunities

The midstream sector has many opportunities for profitable growth in the burgeoning US LNG export industry, and the US Gulf Coast region is seen as the area that will present the most opportunity, according to 63% of respondents.

Sixty-two percent expect a moderate level of consolidation in both 2016 and 2017 (59%), but when asked about whether the midstream sector would consolidate significantly in 2017, affirmative responses increased from 15% to 23%. However, midstream limited partnership (MLP) rollups into C-corporation structures were seen as unlikely (28%) or moderate (52%).

Cost reduction (52%) and regulation (41%) are seen as the midstream sector’s biggest challenges.

Optimism is most clearly seen in the results related to rising capital expenditures. For 2016, only 26% of the respondents saw a net increase in capital expenditures, but that cohort’s expectation rose to 41% for 2017, with 28% of that group citing a modest 10% uptick.

Regulation (39%) and costs (35%) top the list of the biggest challenges facing this highly regulated, capital intensive segment.

Despite regulatory challenges, the outlook for refined products exports next year is seen as positive, as U.S. crude oil exports have offered new competition.Capital expenditures will likely increase from 2016 to 2017, according to 33% of survey respondents, but by no more than 10% year over year. Slightly fewer (30%) expect a net capital expenditure reduction next year.

The return of optimistic sentiment indicates that the industry downturn may finally be over, and suggests low to modest industry growth over the next year, with a full recovery by the end of the decade. Slaughter concluded, “The midstream sector is looking to expand its crude oil capabilities and rebuild infrastructure, and the downstream sector is looking for more demand growth. As optimism returns, as it has, the list of opportunities should be given another look, for it shows the direction the industry will likely take in the years to come.”

Edited from press release by

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